Chevron Corporation (NYSE: CVX), a company manufacturing and selling a range of refined petroleum products, including gasoline, diesel, marine and aviation fuels, premium base oil, finished lubricants, and fuel oil additives, is scheduled to announce its fiscal second-quarter results on Friday, July 29. We expect Chevron stock to likely trade higher due to better-than-expected Q2 results with revenue and earnings both beating market expectations marginally. Higher oil prices have been a major catalyst for Chevron this year. Although the per-barrel price of oil peaked in March, it continues to be elevated, and remains around $95 per barrel currently, and will likely stay elevated for some time to come – fueled by rising demand as pandemic restrictions and fears ease amid Russia’s invasion of Ukraine. As oil prices rise, Chevron is finding itself flush with cash. The company’s cash flow from operations nearly doubled year-over-year (y-o-y) to $8.1 billion in Q1 2022, while its free cash flow surged 144% y-o-y to $6.1 billion (highest FCF in its history). In addition, Chevron reported that its Q1 U.S. oil and gas production was up 10% compared to the year-ago period. Accordingly, it raised its guidance for the entire year to a range of 700,000 to 750,000 barrels per day, an increase of 15% compared to 2021. In addition, the company also expects that operating cash flow per share will increase 10% annually through 2026 as long as Brent crude oil doesn’t fall below $60 per barrel.
Chevron is an integrated oil stock, which means that in addition to its upstream assets, they also have midstream (transmission pipelines) and downstream assets (refineries). This helps the company to minimize the damage sustained in case of downturns. In the case of lower prices for energy commodities, the company stands to benefit from downstream assets by lowering input costs and increasing demand. In contrast, midstream assets generally have fixed-fee or volume-based business agreements, which usually protect them from swings in commodity prices.
Our forecast indicates that Chevron’s valuation is around $158 per share, which is 6% higher than the current market price. Look at our interactive dashboard analysis on Chevron Earnings Preview: What To Expect in Q2? for more details.
(1) Revenues expected to be slightly above the consensus estimates
Trefis estimates Chevron’s Q2 2022 revenues to be around $58.9 Bil, marginally above the consensus estimate. In Q1, rising oil prices helped Chevron’s revenue jump 68% year-over-year (y-o-y) to $52.3 billion. We expect a similar momentum in the second quarter as well. That said, the company also looks well positioned to benefit from its growing activity in the Permian Basin. Chevron now expects 2022 Permian production to be at least 15% higher than 2021. By 2026, the company expects to generate more than $4 billion in free cash flow from oil production in Permian. A quick comparison would be Chevron’s overall free cash flow in 2021, which was $21 billion.
Chevron is lowering its carbon footprint by investing in hydrogen, and alternative fuels like diesel and natural gas produced from renewable feedstocks instead of fossil fuels. It acquired Renewable Energy Group and signed a joint venture with Bunge to develop renewable fuel feedstocks to support future renewable fuel production.
(2) EPS likely to beat consensus estimates marginally
Chevron’s Q2 2022 earnings per share (EPS) is expected to be $5.18 as per Trefis analysis, slightly higher than the consensus estimate. Higher prices and sales volumes drove Chevron’s net income in the first quarter to $6.3 billion (or $3.22 per share), up from only $1.4 billion (or 72 cents per share) in the year-ago period.
(3) Stock price estimate higher than the current market price
Going by our Chevron’s Valuation, with an EPS estimate of around $17.75 and a P/E multiple of around 8.9x in fiscal 2022, this translates into a price of near $158, almost 6% higher than the current market price. As long as oil prices remain strong, shares of Chevron could continue rising in the near term. Meanwhile, Chevron could continue to grow its cash flow through investments in lower carbon fuels in the longer term, resulting in further stock price appreciation.
It is helpful to see how its peers stack up. Chevron Peers shows how CVX stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||6%||-16%||80%|
|Trefis Multi-Strategy Portfolio||9%||-16%||234%|
 Month-to-date and year-to-date as of 7/28/2022
 Cumulative total returns since the end of 2016